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Chapter 8. Office of the Director
Subchapter 2. Administration of Self-Insurance Plans
Article 13. Group Self Insurance

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§15475. Board of Trustees.


(a) Each group self insurer shall have a Board of Trustees that is responsible for all operations of the group self insurer.

(b) Each trustee on the Board of Trustees shall be elected by the group members or, if each group member has a seat on the Board of Trustees, the trustee may be appointed by the group members. At least two-thirds of the trustees shall be employees or officers of the group members. No service provider, director, officer, or employee of a service provider, or person with a direct or indirect management or financial interest in a service provider of the group self insurer shall serve as a voting member of the Board of Trustees of the group self insurer. The Group Administrator may be a non-voting member of the Board of Trustees but shall not vote on any matters before the Board. Service providers of the group self insurer include, but are not limited to, all service providers described in Section 15475.1 of these regulations.

(c) The duties of the Board of Trustees shall include the responsibility to approve or deny the request of any proposed member to join the group self insurer, subject to subsequent application and approval of the proposed group self insurer member by the Director of Industrial Relations.

(d) The Board of Trustees shall take all necessary precautions to protect the assets of the group self insurer, including all of the following:

(1) Designate a “Group Administrator” to administer the financial affairs and normal day-to-day operations of the group self insurer and ensure that there are no conflicts of interest or potential conflicts of interest involving the Board of Trustees, the Group Administrator, or any service providers utilized by the group self insurer, as provided by Section 15475.1;

The group administrator shall not be an owner, operator or employee of any member of the group self insurer or of the third party administrator handling the claims of the group self insurer.

(2) Obtain fidelity coverage in an amount determined by the Board of Trustees to be sufficient to ensure the integrity of affiliate group member or group funds handled by the Trustees and employees of the group self insurer, and obtain errors and omissions insurance coverage sufficient to protect its interests. Evidence of such bond shall be provided to the Chief upon request. The Group Administrator shall obtain and maintain fidelity insurance sufficient to cover funds handled for the group self insurer and errors and omissions insurance coverage sufficient to protect the group self insurer's and its members' interests.

(3) Contract with a third party claims administrator to work directly for the Board of Trustees to administer in California the workers' compensation claims of the group self insurer and require the third party claims administrator to carry fidelity insurance naming the group self insurer as beneficiary that is sufficient to protect the funds handled, and to carry errors and omissions insurance naming the group self insurer as beneficiary that is sufficient to protect against errors and omissions made in the claims handled.

(4) Manage disbursements for the payment of expenses of handling claims, administrative expenses, posting of security deposit, and other expenses necessary for operating the group self insurer;

(5) Appoint a financial institution and establish necessary accounts in California to handle the fiscal needs of the group self insurer and adopt a board resolution authorizing signature authority for each account;

(6) Immediately after the December 31 close of each reporting year, obtain an annual audit of the financial accounts and records of the each group self insurer by an independent, certified public accountant. The Group Administrator may not serve as the independent certified public accountant for the private group self insurer.

(7) Contract with an actuary that meets the requirements of Section 15481, subdivisions (a)(3) and (4) to conduct an annual actuarial review of the group self insurer's claims and produce a written actuarial study that projects ultimate liabilities of the group self insurer by program year at the undiscounted expected actuarial confidence level also commonly known as the undiscounted ‘actuarial central estimate’, inclusive of incurred but not reported (IBNR) liabilities, Allocated loss adjustment expense (ALAE), and unallocated loss adjustment expense (ULAE) to ensure that all claims and associated costs are recognized;

(8) Ensure that contributions are collected for each program year as required by Section 15484, subdivision (e).

(9) Ensure that funds collected from group members shall not be used for any purpose not directly related to the payment of compensation liabilities of the group self insurer, posting of security deposit, payment of assessments and penalties as a group self insurer or the reasonable expenses of operation of the group self insurer. Excess moneys not needed for current operation of the group self insurer may be invested by the Board of Trustees, at its discretion, only as provided by Section 15475.3 of these regulations.

(10) Hold meetings no less frequently than annually to adopt a budget for the upcoming year, approve contribution rates, and review the investment portfolio for compliance with these regulations;

(11) Ensure that the Group Administrator immediately reports to the Chief, in writing, any information that indicates the private group self insurer is no longer in compliance with statutory or regulatory requirements of the workers' compensation self insurance program or of any instance wherein the group self insurer terminates an affiliate group self insurer's group membership for cause.

(e) If specifically authorized in the group self insurer's bylaws, the Board of Trustees may delegate specific functions to the Group Administrator of the private group self insurer, including, but not limited to:

(1) Contracting with one or more third party claims administrators for handling of claims;

(2) Calculating the annual contribution rates to or other means of cost sharing to be charged each group member;

(3) Investing funds subject to Section 15475.3 of these regulations and any restrictions adopted by the Board of Trustees in addition to those contained in subsection (d);

(4) Reviewing and accepting applications from prospective members to the group self insurer and advising the Board if the prospective members do not fully meet the underwriting criteria for group membership;

(5) Executing the Agreements of Assumption and Guarantee For Group Members and the Indemnity Agreement on behalf of the group self insurer;

(6) Establishing accounts in California financial institutions and accounting procedures for controlling funds and ensuring accurate financial reporting with the financial institutions selected by the Board of Trustees.

Note: Authority cited: Sections 54, 55 and 3702.10, Labor Code. Reference: Sections 3700, 3700.1, 3701, 3701.5, 3702.1, 3702.2 and 3702.10, Labor Code.

HISTORY

1. New section filed 6-30-94; operative 6-30-94 (Register 94, No. 26).

2. Amendment filed 3-2-2009; operative 3-2-2009 pursuant to Government Code section 11343.4 (Register 2009, No. 10).

3. Amendment of subsections (d)(2), (d)(7)-(8) and (d)(11) filed 12-31-2012 as an emergency; operative 1-1-2013 pursuant to Government Code section 11346.1(d) (Register 2013, No. 1). A Certificate of Compliance must be transmitted to OAL by 7-1-2013 or emergency language will be repealed by operation of law on the following day.

4. Certificate of Compliance as to 1-1-2013 order, including additional nonsubstantive amendments to subsection (d)(8), transmitted to OAL 7-1-2013 and filed 8-13-2013 (Register 2013, No. 33).

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